Transparency in the Financial System: Rollover Risk and Crises

42 Pages Posted: 12 Jun 2012

See all articles by Matthieu Bouvard

Matthieu Bouvard

University of Toulouse 1 - Toulouse School of Economics (TSE)

Pierre Chaigneau

Queen's University

Adolfo de Motta

McGill University - Desautels Faculty of Management

Multiple version iconThere are 2 versions of this paper

Date Written: May 2012

Abstract

The paper presents a theory of optimal transparency when financial institutions are exposed to rollover risk. Transparency enhances the stability of the financial system during crises but has destabilizing effects in normal economic times. Thus, the regulator optimally increases transparency during crises. Under this policy, however, increasing transparency signals a deterioration of economic fundamentals, which gives regulators ex-post incentives to withhold information. The theory relates optimal transparency to financial institutions' incentives to diversify their risk and hold liquidity. In particular, the optimal policy reduces the net benefit of diversification and generates an equilibrium level of liquidity that is inefficiently low.

Keywords: transparency, banking, rollover risk, crises

JEL Classification: G21, G24, G01

Suggested Citation

Bouvard, Matthieu and Chaigneau, Pierre and de Motta, Adolfo, Transparency in the Financial System: Rollover Risk and Crises (May 2012). Paris December 2012 Finance Meeting EUROFIDAI-AFFI Paper, Available at SSRN: https://ssrn.com/abstract=2075817 or http://dx.doi.org/10.2139/ssrn.2075817

Matthieu Bouvard

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Pierre Chaigneau (Contact Author)

Queen's University ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Adolfo De Motta

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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